Strategically open

Digital is making all innovation inevitably open to some degree, says Professor Bowman Heiden: the question is to how capture new value by lining up the underlying intellectual assets in the right business model

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Strategically open at Red Hat, whose use of relatively restricted licences led to a multibillion exit

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Bo Heiden

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The tempo of innovation has changed. Not just for digitals but for everyone. Products that once took years to develop now go viral in months. The window of profitability has become correspondingly shorter and more intense. Fall behind the curve and you will struggle to make much of a return.

When products combine both multiple technologies and are faster to market, we are all inevitably innovating openly to some degree, whether we fully realise it or not. Take artificial intelligence. It is all about building on advances by others to develop your own version or application. As yet, no one is wholly clear about who the winners will be, although it’s sure to be those who are flexible enough to combine a degree of openness with a business model that captures the value of the underlying IP.

This degree of openness can vary as we have seen with mobile standards. Google’s Android is free to use with the aim of growing an ecosystem of innovations that rely on it. Apple has taken a more proprietary approach that wraps the software into the overall customer experience. Both took a view on how open they were going to be between permissive and restrictive, then built their business around it.

It's a familiar digital pattern, which is now repeating itself in other industries. In automotive, the battle is about who will own the driverless experience. Will it be the established makers? Or will they be usurped by the digital giants who have much wider experience of designing these interfaces? Or will it be a completely new set of ventures, as is often the case when industries transform? They are the ones who can leave behind legacy systems and invent for the next disruptive phase. The outcomes are still far from certain.

For automakers and their supply chains, the first step is to stop thinking of themselves as just mechanical engineers, but as suppliers of mobility. To innovate, they are going to reach beyond their own domain to bring in new technologies and solutions. Those who navigate the transition will have learnt to co-invent with new types of partner, sharing their intellectual assets within a model that allows them to make a return.

For many, particularly those in the supply chain, it is a daunting prospect. Many despair of ever making a return from innovation: aren’t the odds stacked against them? won’t the digital tide sweep them away?

Such angst is only a first reaction. Acceptance will eventually come. A path forward can then be found that depends on becoming strategically open. It’s on that basis that Philips co-created the Senseo coffee maker. As a company, it was just the kind of established hardware manufacturer that you might expect to struggle with multi-technology, convergent products. Instead, it forged an alliance with Sara Lee to redefine how we can drink coffee at home. It proved an inspired combination. It was equally creative in how it brought together two distinct cultures with diverging expectations for realising value. Philips is now applying what it learnt to forge a new partnership with ABS for how we drink beer at home.

So what does it take to reset the dial and start becoming strategically open? First, understand where you are competitively positioned. Next define your IP as digital assets. Then master the complimentary domains of open data, open source and open standards. Like Philips, you will now have the flexibility to experiment with different business models in a way that secures your intellectual assets and allows you to make a return.

No two answers will be the same. Open is a spectrum between permissive and restrictive. It is up to you to find a balance that sets  the speed and scope to explore new possibilities against the intellectual assets that give you control to regulate the outcome in a way that favours you.

Set the dial

Digital demands that you compete and collaborate on new terms. Often you will find yourself dealing with those from outside your normal sphere. You can’t assume that they will instinctively appreciate how your industry or your market works. They may well have ideas about doing it differently anyway. So before you start, ask yourself three questions about where you really stand.

First, second or third mover?

Technologies such as AI have their roots within an open culture, progressively building on one innovation after another. As a first mover, you might be looking to encourage adoption. As a third mover, you will probably prefer to build on what is freely available and establish your own distinctive point of value.

Development or distribution?

Strategic openness happens in two distinct phases. First, when you accelerate innovation by pooling resources, expertise and ideas, while guarding the ownership and usage of the results that matter to you.

Second, you may chose to open access to your technology to encourage adoption or build an ecosystem around it. No uniformity governs such releases. Terms vary between going into the public domain without restriction and requirements to report back any improvements.

Contributor or beneficiary?

Within the layers of your openly sourced innovation, you want to be clear about your status as a contributor or beneficiary. If software is free to use, it’s worth drawing a line with what is proprietary to you. Typically, you will give away a free version, then offer an upgrade by paying for the full functionality.

Intellectual assets

Tech ventures tend to take a narrow view of assets within their portfolio. They often feel it’s diffuse or like a cloud. Instead, it’s a matter of taking a step back and thinking what could find a place within a business model. Data, observations and correlations all have value. Likewise, workarounds, visualisations, instructions and software. Typically, between 10 and 40 assets could qualify to answering the question of what is valuable, unique or within your control.

Future control points

For tomorrow’s technology leaders, IP management takes on a proactive role, shaping what research to pursue and what technology to acquire. The goal is not just to protect what ideas you develop. It is to create future control points in the market. It is still relatively unusual for strategy and IP to combine in this way, even if it holds the potential to anticipate where profitability will peak.

Fill the gaps

Once strategy and IP are aligned, it becomes possible to anticipate how you might be competing in five years and what gaps you have to fill. It’s an expansive question.  Think widely with your collaborators about what technologies and solutions you might want to acquire. If you can line up these external sources of innovation, it will give you more scope to manage the convergence, complexity and speed that today’s markets demand.

Keeping track

As you progress, it’s easy to lose track of what you’re bringing in and what you already have. It’s a frequent sticking point negotiating deals or exits. Instead, if you keep an inventory as you go, you will add depth to your portfolio. Otherwise, if you’re put on the spot at short notice about what clearances you have for being open, it can be awkward to fix.Quantum value today

Digital assets

Those developing smart products are inevitably being drawn into innovating openly, as they rely to different degrees on open data, open source and open standards to facilitate their adoption of new technologies such as AI and machine learning. Each has its distinct characteristics, so it is easy to treat them as separate domains. The challenge is to combine their varying degrees of openness in a way that gives you the freedom to invent and establishes your ability to make a return.

Open data

As a fluid asset, data encourages you to be more open and collaborative. Rapid progress depends on building on the work of others. So how do you allow access to your data, leverage somebody else’s or license it?

Defensively, you have to secure it as an asset and create a culture of confidentiality. Offensively, you will create your own capabilities for modelling and analysis. Then be clear about who can use the results.

As a smaller venture, the main step is to start putting these steps in place for transparent agreements with your partners. It will give you a system of consents that establishes what you can do with the data, who can make what analysis and who can develop products from it. If you can put such a structure in place, then data can live up to the potential that the OECD has identified for becoming one of the primary inputs to innovation.

Open source

In software, 80 percent of any innovation is open source developed within a community. It’s then down to you how creative and profitable the rest of it becomes.

Within open source, there is a spectrum of licences, some highly liberal, others more restrictive. As well as being clear on your legal position, you will take a view at what speed and in what manner the software has been developed.

Open source fundamentally depends on how the copyright is created and shared between everyone in the community. In some instances, you are free to develop whatever you like without attribution. In others, you are required to feedback whatever improvements you make, referred to as copyleft in the Linux community.

Open standards

Open standards are a complementary domain that operate in a different way. It’s largely a question of leveraging what is already there, such as WiFi or 5G, then making the case for any future requirements by engaging in industry consortia.

The underlying IP is generally based on a pool of patents. Terms of access vary. In some cases, such as Bluetooth, the standard was developed by manufactuers, such as Ericcson, to encourage the sale of hardware. In other, such as cellular networks, a standard royalty (Frand) applies.

Business models

Once you know where you sit on the open spectrum, you gain the flexibility to adopt different business models to give yourself more freedom for creative manoeuvre, while retaining control of your underlying assets. Examples include:

• Co-creation: where equal partners from different domains come together to create new value across different disciplines and different cultures.

• Free standards: where you release a platform technology to create an ecosystem of second and third movers around you (as Google has done with the Android system for mobiles).

• Licensing to self-fund: where you release a platform technology to other domains to fund the development of your core product.

• Data repositories: all those in an ecosystem, whether as enterprises or as public bodies, pool their data, aligning its security first, then clarifying its use for analytics and modelling.

• Supplier interfaces: where you change the conversation with suppliers to allow for more co-development.

• MVPs: where a foundational idea goes through a series of rapid iterations with potential users to identify the minimum viable proposition that the market will accept.

• Double-sided offers: where you market a product for free to attract enough followers whose data you can commercialise.

• Freemiums: where you release the basic version for free, then charge a premium for upgrading to a premium service.

  
  

All of these depend on a different configuration of openness. They are far removed from the traditional push of a technology into the market, where the IP acts as a safeguard. Instead, a more dynamic interaction happens with a broader range of actors, whether users, suppliers or partners, which gives full scope to market pull and gives IP, in all its forms, a primary role in establishing a value proposition that will secure a return for each layer of innovation.

As we saw with Red Hat, which operated through a series of relatively restrictive copyleft licences, it is possible to create a business model that can result in a multi-billion dollar sale to IBM. For all ventures, it’s within their power to decide how strategically open they are going to be.

• 'Strategically open', an article by Bowman Heiden, first appeared in Managing Intellectual Property Today, 2025 edition, published by Novaro, ISBN: 978-1-0685644-1-3. See here for further details.

Sources

‘Making Open Innovation Work’, a presentation by Bowman Heiden, CIP, Maaike van Velzen, partner, Deloitte and Jimmy Ahlberg, director, open source policy at Ericsson at the High-growth Technology Business Conference, EPO and LESI, November 2022. Full recording at: epo.org/en/news-events

‘Strategic Openness: Designing open innovation and intellectual property’, Bowman Heiden, Bulletin 8, European IP Helpdesk

‘Catch the Growth Wave of Innovation’, an article by Bowman Heiden and Ruud Peters in Managing High-Growth Intellectual Property, Novaro Publishing, January 2021